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Designing the Physician Led Network
Designing the Physician Led Network

Richard Krohn
Like the turning of the century that rapidly approaches, physicians today find themselves at a crossroads - looking back wistfully at an irretrievable past, in which they commanded unquestioned authority and control of their profession, and looking towards an uncertain future, a vision often accompanied by the looming specter of corporate medicine.

If the present state of U.S. health care delivery is an accurate barometer of things to come, physicians are wise to be concerned about their future. The U.S. health care marketplace is consolidating, which inevitably leads to a surplus of supply. Physicians have been subject to the euphemistic "cost compression", which is nothing more than a polite term describing declining reimbursements, selective panels, and increased accountabilities. Physicians have also been compelled to accept, at the risk of lost revenue, unfamiliar risk sharing and referral arrangements. Left unchecked this market dynamic could escalate into a Darwinian cycle of competition among physicians to do "progressively more for progressively less".

Like any other industry faced with market power concentrated in the hands of a relatively few, health care providers have recognized the value of uniting to exercise their own market clout. This strategy has acquired an added dimension of value as managed care evolves, because it affords providers an opportunity not only to preserve income and control, but provides a platform to build the types of organizations that can grow and gain market power in a continually changing business environment. But which provider business models offer the greatest prospect of sustained viability as managed care markets mature and government programs such as Medicare and Medicaid transition enrollees to managed care plans?

At the recent National Congress on the Future of Medical Practice and Practice Management, industry experts shared their views on the characteristics of future physician organizations. A common thread ran through many of the views expressed regarding the roles of physicians in the evolving health care marketplace. It was this: entrepreneurial, physician driven organizations will be central players in the evolving managed care landscape.

At the Conference, Keith Korenchuk, Principal of Davis, Wright, Tremaine described a new model of physician-hospital integration called the "institute" model that embraces the continuum of inpatient and outpatient care and in which ownership, decision making and management are equally shared between hospital and physician organization(s). The attraction of physicians to this network approach, according to Korenchuk, lies in the "psychic equity" and aligned incentives of the approach that overcomes cultural divisions and builds critical mass.

The theme of physician network alliances was reinforced by the remarks of Joseph Hutts, CEO of PhyCor. The future of PPMC's according to Hutts lies in network physician relationships, characterized by multispecialty networks linked to PCPs. Significantly, PhyCor's strongest growth has occurred in it's relationships with IPAs - a relationship that PhyCor plans to pursue aggressively.

In the HMO industry, it was acknowledged by Dr. Francis Crosson, Executive Director of The Permanente Federation that staff model HMOs are nearing extinction and pure group models are few in number. The overwhelming growth in the HMO industry is occurring in "mixed" network models.

The physician network, and more specifically the physician led network, is the unifying link in the spectrum of provider driven health care organizations. Without networks of physicians, provider organizations are simply islands in the sea. With networks of physicians, provider organizations are multidisciplinary, regional, multidimensional health care delivery entities. But why physician led networks? Because they address the business of medicine, which it is now painfully clear is a main market driver. Because they place organizational decision making in the hands of competent physician leaders; leaders who are trusted and accountable to their member constituency. Because the physician led network taps into a vast well of discontent among rank and file physicians - who have witnessed their professional and economic status decline. Finally, because an upswell of consumer demand for choice, access, and quality has led to a natural alliance of patient and provider. Physicians are reasserting their market power by forming networks, and regaining control of their professional lives in result.

One of the lynchpins of success in any business venture is adequate planning, and yet this aspect of physician network execution has often been neglected. Establishing a value proposition, a vision and mission, governance, qualifying the market opportunity, and defining the delivery mechanisms for market driven product and services are fundamental attributes of successful business ventures. In the physician led network, these processes and the decisions that result must be spearheaded by qualified physician leaders, in collaboration with qualified business advisors.

Physician Leadership and The Network Planning Process
Perhaps the greatest challenge facing physicians in organizing networks is the inertia that often accompanies a project of this magnitude. Physicians are consumed by their profession, and the additional time and resource commitments of this initiative are substantial. Without proper physician motivation, commitment, and expectations, a network development initiative can drift along or languish due to inattention. It's vital from the start to establish strong, committed physician leadership, to develop and adhere to an execution plan that equitably distributes responsibilities, and to empower a network development team that is inclusive of the entire membership. By addressing these criteria at the outset, physicians can greatly increase the probability that their network will truly respond to a market need.

Selection of the physician leadership is a delicate task, and unless carefully executed is bound to raise parochial debates about turf, individual agendas, qualifications, and representation. Prospective network applicants will first examine the characteristics of the physician leadership before investing significant effort in supporting the execution of the network. For these reasons it is absolutely critical that the physician leadership possess several shared traits:

  • Professional Respect. Physician leaders should be recognized by their peers as ethical, trustworthy individuals whose participation will yield a collective rather than personal benefit. This includes the qualities of intuition and critical thinking, openness, impartiality, and even charisma.

  • Organizational Skills. Physician leaders should be action oriented, decisive, focused, excellent communicators, possess proven managed care insight and business acumen, and be effective facilitators.

  • Consensus Building. Physician leaders are the public relations team of the network, and must be able to generate enthusiasm and support across the entire physician panel. To do this they must be representative of a significant portion of the physician panel, be strong mediators, team players, mentors, and to an extent-salespeople.

  • Entrepreneurship. The physician network is a business enterprise-and physician leaders should possess a solid understanding of the business of medicine. They should be well-versed in managed care principles and the practical issues associated with executing a physician-based managed care strategy. Finally, they should be visionaries of a future in which physicians play a leading role.

    Is it likely that each prospective physician leader will possess the entire package of preferred qualities? Hardly. For this reason it is important to strike a balance between those physicians that possess obvious strengths (and a willingness to invest their personal time and energy) with the political and social implications of their leadership as perceived by the entire physician panel.

    Once physician leaders have been identified they must form a committee (often called a network planning committee, steering committee, or network task force) to give structure to the planning process. The committee may include upwards of anywhere from 5 to 15 people, depending on the panel size, alliance partners, management, and clinical composition of the network, but should by no means exceed a representative core of constituent groups.

    Strategic Planning
    Strategic planning and execution of the network is process?intensive, which means that committee members must be prepared to allocate time to attend meetings, be informed to make decisions, complete tasks, and continually propel the network towards operationalization. Conceptually, the evolution of the strategic planning process can be thought of as three distinct phases:

    I. network feasibility,
    II. network organization, and
    III. network operations.

    Typically, Phase I consists of market feasibility research, which may include surveys and interviews, an environmental assessment, institutional and benchmarking research, and economic opportunity analysis. Phase II consists of top?down organizational planning, including establishment of a legal entity, definition of bylaws, policies, and governance, capitalization and alliance development, an assessment of internal capabilities and additional infrastructure requirements, and the creation of subcommittees to thresh out a narrower range of issues, such as membership and credentialing criteria, product and network development, quality and medical management, physician support services, managed care contracting, etc. In Phase III, the emphasis shifts from strategic planning to business planning. Issues such as service modalities, staffing, vendor relationships, marketing, and budgeting pave the way to execute the network.

    Market Research as a Planning Tool
    To validate the network concept, it is vital that a feasibility study confirm the basic network propositions. The feasibility study is the point of departure for network strategic planning. The conclusions from this research determine the type of physician network the market demands, its' service limits and growth potential, the types of functions that it can economically deliver, competitive factors of the relevant market, and clear indicators of how the network can succeed as a business enterprise.

    Network feasibility typically evaluates research from among five key areas: physicians (and alliance partners), payers, the community, an infrastructure assessment, and comparative benchmarking.

    Provider research serves two main objectives: to take the pulse of community physicians and determine their receptivity to the network concept, and to learn their individual issues, problems, and needs; and to determine the value and feasibility of an alliance with like minded strategic partners such as health systems or service vendors. Payer research (including self insureds) establishes the economic viability of the network concept. The network must answer a market need that is most clearly expressed in payer demand for network services.

    Community research reveals the market need to more perfectly match physician supply and demand, to measure business demand for quality, access, and cost efficiency, and to introduce services to under served elements of the community. The infrastructure assessment is an adjunct to the provider research, in that it attempts to gauge existing physician and alliance resource capabilities available to the network in relation to defined market needs. Organizational benchmarking is a comparative tool that examines the experience of similar organizations in similar markets, to provide insight into the likely issues, opportunities, and barriers to market entry.

    Once the feasibility of the network concept has been validated, the network Steering Committee must articulate a network strategy that clearly defines the mission and vision of the organization, defines its' distinguishing characteristics, and relates its' proposed activities to a compelling market need.

    Defining the Mission and Vision
    The network vision is a function of the prevailing market forces impacting upon physicians, the political and clinical dynamics of the local physician community, market demographics, the current degree of physician integration, and the underlying commitment of physicians to take action on their own behalf. The physician network must communicate its compelling story to prospective members within several key concepts. These ideas are necessarily market driven, and should speak to physician hopes and fears about their individual futures.

    For example, in a lightly penetrated managed care market, the compelling story will probably focus on the shared contracting and marketing potential of the network, because these two capabilities answer a short-term market demand. In more advanced managed care markets, the vision might feature practice operations and sophisticated risk and medical management services. Regardless of the market stage, the network vision must resonate throughout the spectrum of physician attitudes towards integration. Some physicians are motivated by fear, others by opportunity, and the network vision must straddle the diverse objectives of the entire physician panel. It may be necessary to adopt a modest vision to attract a broad range of physician support, with the expectation that this foundation will serve as the basis of further physician integration once traditional barriers to physician collaboration have been breached.

    Like the vision statement, the network mission must be phrased in such a way that it communicates one or more central ideas without overselling the network or misleading the audience about the market impact of the network strategy. For instance, it is a bold statement to claim that a prospective network will become "the predominant physician organization" in a locality, a region, or even nationally. It is equally ambitious to suggest that such a network will provide "the entire continuum of practice support services" to members. Expressed correctly, the vision and mission statements define the market strategy of the network, and manage expectations of what the network will achieve.

    Meeting the Market
    In addition to defining the broad purpose and goals of the network, the leadership must also establish a linkage between the overarching vision and mission with an existing or emergent market dynamic. This linkage in turn should conceive in the minds of network members the impression of a clear economic or clinical benefit. For instance, a contracting network should offer a competitive advantage, through network size, or contract management capabilities, or risk management infrastructure, that payers and purchasers require, and that have no substitute at the practice level. Alternately a more advanced network offering practice management services should match its menu of services to physician demand, which in turn should reflect a market need to establish practice efficiency and clinical excellence. To the individual physician, the network concept should address personal concerns about practice control, reimbursement, clinical quality, practice efficiency and growth, or other market driven "hot buttons".

    Although the processes of leadership and strategy selection comprise a relatively small expense of the overall energy and effort that must be contributed to the successful execution of the network, they are perhaps the most important. Each successive phase of network development - from planning to execution - is impacted by the quality of the leadership directing the effort, and the fundamental value propositions of the network strategy. By making the correct choices at the outset of the network development process, the prospects for successful completion of the balance of the many tasks that remain are greatly increased.

    At the conclusion of these initial exercises- proving the economic value of the network through sound investigation, coupled with a market driven definition of the organization, the broad outline of the network business model and strategic plan are complete. But strategic planning is not a discrete activity in a linear chain of network development tasks. Network managers must continually evaluate the present effectiveness and future sustainability of their business model. As managed care markets mature and consolidate, the network model must adapt itself to a changing competitive climate. Staying in step with the market - or better yet staying one half step ahead - is not a process that occurs in response to predictable or even familiar indicators. Each market exhibits unique characteristics and it is the sum of these individual factors that shape the correct network positioning.

    Richard Krohn is a member and contributor of HealthBond. View his expert page on HealthBond.

    Richard Krohn is President of HealthSense. Krohn is a widely-published managed care expert as well as a dynamic speaker providing in-depth, practical and timely information on topics such as managed care contracting, strategic positioning for provider organizations, building new provider alliances, reengineering practice operations, developing market driven products, and creating equitable physician compensation plans.

    Sept. 14, 2000

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